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paul leonard hill :

22 Mar 2013 7:11:28pm

SAYS LAW.

WAGES.Say was a French economist who proposed a Law which is so simple it almost beggars belief. Get a pencil and draw two equal sized rectangles spaced a bit apart from each other, write in one CONSUMER and in the other one PRODUCER. Now draw an arrow from the consumer box to the producer box and write above it CONSUMPTION and one the other way from the producer to the consumer and call it WAGES. The consumer works for the producer, gets wages from the producer, with which he or she purchases the goods made by the producer.

Now let’s assume that every country in the world lowers tariffs in the name of free markets and its obvious that the country that can produce those goods the cheapest (China and now India) will have the advantage and out compete everybody else. China does it because it has such a low wage rate, thereby forcing other countries to lower their wages to compete. Okay now draw a smaller box in the consumer box and its evident that in lowering the aggregate global wages bill there there is not enough money to purchase the global aggregate industrial output of goods and services. Now shade in the space between the little box and the big box and call it credit or better still debt.

You get the picture The only way you can lower wages to compete on export markets whilst maintaining local consumer demand is to allow the consumer to go deeper and deeper into debt. Austerities as the answer? Then take away payment for overtime. Lower wages plus force workers into deeper debt that becomes impossible to pay off and you have a very stressed out and belligerent workforce. If you lower wages lower than they already are, whilst making savage cuts to the public sector workforce, cut pensions, etc. you simply further depress an economy and reduce further it’s chances of growing and paying of its debt. It cannot work, it’s impossible and a perfect formula for a breakdown in law and order and eventually civil war EVEN in the US.

SPECULATION. Speculation produces no real wealth. It merely redistributes wealth from the poor to the rich via the Hood Robin effect, i.e. the crumbs jump up off the floor onto the table, thereby starving the dogs down below. The little speculator loses out to the big one, the small taxpayer increasingly subsidises the rich, wages go down whilst ceo’s remuneration goes up. So to keep it simple for now the only way out is that the rich have to pour money into that shaded area in the CONSUMERS box or else the entire banking system goes down and the rich go down with it. A bad run on a big bank starts a chain reaction?

PRODUCTIVITY.As to improving productivity you can take advantage of the high dollar to import more efficient capital equipment. Trouble is you still might not compete with China on export markets, because no doubt most companies in China would ALSO be using the latest most efficient capital, as China makes everything nowadays

paul leonard hill :

22 Mar 2013 8:06:59pm

THE RESOURCES BOOM.One thing that became glaringly obvious about the resources boom under Malcolm Frazer, that by nations creating more and more raw materials available, the manufacturing sector that ACTUALLY USES these resources becomes starved for investment as it all going into mines and infrastructure to support them. So piles of raw materials and nobody to use the bloody stuff.

Then there is the skilled labor that is sucked out of the manufacturing sector into the resources sector, runaway wages paid by mining companies that manufacturers cannot compete with. Builders move to these hot spots making them unavailable elsewhere thereby driving up building costs elsewhere. Farmers can't get skilled labor as they too are off to the mines. The exchange rate is driven up by speculation also making it difficult if not impossible for manufacturers to compete on export markets.

Now manufacturers and farmers are going bust one after the other and will continue to do so.

IT IS AN ILLUSION thinking that national wealth can be generated by resources, as it ALWAYS is at the expense of manufacturing. The DUTCH disease it's called. I once heard a doco comparing Spain's and Britain's performance during the industrial revolution. Britain became the powerhouse of manufacturing because it DIDN'T have a lot of resources whereas Spain didn't because it had a lot of resources. Why are economists so arrogant as to think that they can devise models where you have your cake and eat it too, that things are different in the modern world, like bank deregulation.

As to wages, you have to protect wages to maintain demand by raising tariffs. (SAY'S LAW). That dirty word PROTECTIONISM, but set at a level which is reasonable. Trouble is you'll invite retaliation which is NOT reasonable and may be in breach of the GATT. Almost everything about deregulation is irrational and stupid. It makes money for fat cats only until the world economy collapses, then everyone dips out.

CYPRUS. Do I need to say more? Eh? We could be on the very precipice right now. It's banks MAY open Tuesday if some sort of deal can be reached. That gives depositors just two days to rip there money out before the 4 day Easter holiday weekend. 4 days to bite one's fingernails back to the elbows. Greek Cyprus, Greece next? Then Spain, Portugal, Italy and on and on. THE CONTAGION, spreading like wildfire to a bank near you.

A friend of mine, who is a bit of a speculator, told me yesterday that the 'value' of derivatives, (which create nothing but destruction), worldwide is estimated to be ONE THOUSAND TIMES the value of the real world economy. Jesus wept! If that ain't insanity I don't know what is.